Seven Funds for Disciplined Investing

If your New Year’s resolution was to save more, then I’ve got some ideas for you. One of the best ways to force yourself to sock away money is buying funds through an automatic monthly investment plan. You agree to contribute each month, and the money is whisked away before you can spend it. A number of fund shops even waive their regular minimum investment if you sign on for a monthly investment plan, so you don’t have to wait until you’ve scrounged up $3,000. I’ve come up with a list of funds you can buy for an initial investment of $500 or less. Each one can fill a different role in your portfolio.

Short-Term Muni Funds
Financial planners say that every investor should begin by setting aside about six months’ worth of expenses in a money market fund. If you want to bump up for a little more yield, a short-term bond fund can work as a relatively safe place for some of that money. I’d still recommend keeping some in a money market. One of the better short-term muni funds is  USAA Tax Exempt Short-Term (USSTX). With an expense ratio of just 0.54%, it’s a low-cost fund that has delivered excellent returns without much risk.

Intermediate-Bond Funds
Intermediate-bond funds should be at the heart of your bond portfolio. If you’re in a low tax bracket or investing in a tax-sheltered account like a 401(k) plan, then go with taxable-bond funds.  Harbor Bond (HABDX) is one of the best there is. It’s run by PIMCO’s Bill Gross, and it charges only 0.58%. Gross is a two-time winner of the Morningstar Fixed-Income Manager of the Year award, and he and the crew at PIMCO have proven they're among the very best bond managers around.

Multisector-Bond Funds
If you want to supplement your core bond holdings, a multisector fund is a fine option. Just be careful not to get one that’s super-risky or high-cost. Multisector funds invest in a wide variety of bonds, from boring Treasuries to emerging-market bonds, high-yield bonds, and mortgages. One of the better plain-vanilla options is  T. Rowe Price Spectrum Income (RPSIX). It's a nice diversified fund that rarely loses money.

Large-Value Funds
Oddly, dividend-paying stocks got neglected in 2003 despite their elevated tax status. The nice thing about dividend-focused funds is that they can be much more stable than most stock funds. Brian Rogers has crafted a wonderfully boring (and dependable) fund in  T. Rowe Price Equity-Income (PRFDX). If you are just starting to build your portfolio, this is a good entry point for the stock market.

If your portfolio is pretty well rounded, then you might want to go another route:  Oakmark I (OAKMX). Bill Nygren is one of the best stock-pickers around. This fund won’t provide as smooth a ride as T. Rowe Price Equity-Income, but you it’s got quite an upside. Nygren looks for stocks trading at big discounts to his estimate of their value, but the fund has almost as many blend stocks as value because he is just as willing to buy in growth industries as value.

Small-Cap Funds
Small caps have had a huge four-year run of outperformance, so I wouldn’t make this the place to begin building a portfolio. However, if you’ve got all the other parts in place, don’t neglect small caps. By using an automatic investment plan, you’ll at least be able to take advantage of price dips by buying more shares.  Ariel Fund  (ARGFX) is an appealing option. John Rogers has been running the fund since 1986, and he’s built a strong record undervalued companies with strong franchises. Often, his stock picks get bought out by acquisitive companies.

Foreign Large-Blend Funds
Most fund investors only have one foreign fund, so a foreign large-blend fund makes a lot of sense. One of the best options is there is the broker-sold  American Funds EuroPacific Growth (AEPGX). The fund boasts low costs and seasoned management. American is one of my favorite fund families because it has always focused on what’s best for fundholders in the long run.

Poll Results
Last week, I asked which Manager of the Year runner-up you hoped would win the award in the future. This is how you voted.

70.2% - John Montgomery of Bridgeway Funds  
17.7% - George Greig of William Blair
12.4% - The team at Western Asset Management

I also asked which past Manager of the Year you would most like to invest with. Here are the results.

51.0% - Joel Tillinghast at Fidelity Low-Priced Stock  
15.8% - Sandler, Gipson, and Veaco at Clipper Fund
14.9% - Tom Marsico at Marsico Focus  
12.9% - Martin Whitman at Third Avenue Value
5.5% - Mario Gabelli at Gabelli Asset